In-N-Out Burgers, Inc v Hashtag Burgers Pty Ltd  FCA 193 (26 February 2020)
Successful actions for trademark infringement, passing off and misleading or deceptive conduct by In-N-Out Burgers (INO).
INO has, since at least 1967, owned and operated a growing chain of burger restaurants in the USA under the name In-N-Out and has various Australian trademark registrations for IN-N-OUT BURGER in plain word and logo form as shown below (the INO marks).
The logo mark, in use, is rendered in red and yellow colours as shown below:
INO serves a basic menu of 3 burgers with secret menu variations including ‘animal style’ and ‘protein style’.
Since May 2004, INO has operated an online store where members of the public throughout the world, including Australia, can purchase merchandise. Also, from around 2011, INO has been active on social media. It also has hosted pop-up restaurant events outside the USA including 8 such events in Australia between January 2012 and March 2018 in Sydney, Melbourne and Perth.
INO objected to use of Down-N-Out (and variants thereof) by the respondents in connection with burger restaurants in Australia. The Down-N-Out brand was initially used from 2016 by Benjamin Kagan and Andrew Saliba and subsequently by Hashtag Burgers Pty which was incorporated on 23 June 2017.
In June 2015 and January 2016, Kagan and Saliba held a pop-up burger event in Sydney under FUNK-N-BURGERS branding as shown below and offering Down’N’Out burgers served up ANIMAL STYLE.
Indeed, there was evidence that Mr Saliba asked the graphic designer to make “a funk n burgers sign like in n out burger” and emailed him a copy of the In-N-Out logo.
In June 2016 Kagan & Saliba opened a pop-up burger restaurant in Sydney with the following Down-N-Out branding:
On 17 June 2016, INO contacted Kagan & Saliba with a polite letter asking them to change their branding. They responded with various denials, but subsequently covered up the arrows and changed their branding, an example of which is shown below:
Kagan & Saliba and then Hashtag Burgers continued to open pop-up and other restaurants before and after INO commenced these proceedings.
In finding the various versions of Down-N-Out used as trade marks by the respondents were deceptively similar to and infringed the INO marks, Katzmann J considered the intention of the respondents was a relevant consideration. They adopted the Down-N-Out name, not to paint a picture of a person down on his luck, but to remind consumers of In-N-Out Burger. Significantly, Kagan & Saliba chose to not give any evidence. Her Honour considered it was open to draw an adverse inference that they adopted aspects of the INO marks in order to capitalise on its reputation. In reaching this conclusion, her Honour was critical of Kagan & Saliba’s initial denials that they had used “Animal Style” and “Protein Style” for their menus items and of the respondents’ lack of compliance with their discovery obligations. Put simply, the respondents “sailed too close to the wind”.
Australian Consumer Law (ACL)
INO alleged that the respondents’ conduct at its various restaurants as well as on its website and social media was misleading or deceptive under s18 of the ACL.
An initial issue was whether INO’s brand enjoyed a reputation in Australia as at the date the respondents’ impugned conduct began on 25 May 2016. Katzmann J noted that it was not necessary for a foreign trader to have either a place of business or a physical presence in Australia for it to have a reputation here. Here Honour was satisfied that a substantial number of persons in Australia were aware of INO’s brand, its restaurants and its products. Indeed, her Honour commented that it is difficult to understand why the respondents contested the point.
The respondents’ conduct was broken down into 6 categories with Katzmann J upholding INO’s claims in each category. While it was noted that red and yellow colours were used by others in the fast food trade, her Honour considered that use of the Down-N-Out name in all its various forms when used in conjunction with burgers suggests an association of some kind with INO.
The passing off claim involved the same conduct as the ACL claim. While the ACL is concerned with the protection of consumers, passing-off is concerned with the protection against injury to the proprietary right in the goodwill or reputation of a business.
Katzmann J found the elements of the tort of passing off (goodwill, misrepresentation and damage) were made out. Her Honour accepted that INO’s reputation, which is intimately connected to the IN‑N‑OUT brand, gives it a real advantage in the Australian marketplace, although there is no evidence (as yet anyway) that INO has suffered any actual damage from the use by the respondents of their various Down-N-Out marks. Nonetheless, INO may be able to recover a reasonable amount under “the user principle” for example, calculated on a reasonable royalty or licence fee.
Liability of Kagan and Saliba
Kagan and Saliba were jointly and severally liable for their wrongful conduct up to the incorporation of Hashtag Burgers on 23 June 2017. Thereafter, Hashtag Burgers was liable. However, Katzmann J also had to consider whether Kagan & Saliba were also jointly liable with Hashtag Burgers after its incorporation.
Her Honour found that Kagan & Saliba were knowingly concerned in the contraventions by Hashtag Burgers under the ACL; although this was based on a concession by the respondents.
However, her Honour then had to consider whether Kagan & Saliba were joint tortfeasors with Hashtag Burgers for passing off (common law tort) and/or trade mark infringement (statutory tort). The answer depended on the extent to which a director or officer of a company can be held personally liable for its torts.
Here, there was no direct evidence about the circumstances of incorporation or the conduct of Kagan and Saliba after incorporation. INO’s allegations were based on circumstantial evidence arising from them being the sole shareholders and directors of Hashtag Burgers and making decisions as to its management. However, Katzmann J was not satisfied INO had discharged its onus of proving that Kagan and Saliba were jointly and severally liable with Hashtag Burgers for the infringing conduct and passing off that occurred after incorporation of the company.
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